After a turbulent summer, September was largely a calm affair for markets according to Deutsche Bank's Jim Reid. Indeed volatility measures for most assets continued to remain subdued and concerns around the EM issues which haunted markets in August abated. Italy was always going to be the big risk however and it wasn’t until the budget was announced on the second-last trading day of the month that we saw vol return. That said the heavy falls for Italian assets, while also spreading to Europe, were still relatively contained. By the end of the month 20 of the 38 assets in Deutsche Bank's sample finished with a positive total return and 21 did so in USD terms.
Going into Friday, BTPs and the FTSE MIB had actually delivered total returns of +3.4% and +6.5% respectively during September however the selloff post the budget announcement meant they finished the month +1.7% and +2.5% respectively. That resulted in heavy falls for most other European bourses too on Friday which pared what had been reasonable monthly returns. Indeed European Banks (+1.5%) and the STOXX 600 (+0.3%) just about closed with positive returns while the IBEX (-0.1%), DAX (-0.9%), Portugal General (-1.5%) and Greek ATHEX (-5.2%) all finished lower on the month. By contrast the S&P 500 (+0.6%) notched up yet another monthly gain (seventh this year) despite the NASDAQ (-0.7%) ending lower. The NIKKEI (+6.1%) was actually the top performing equity market, albeit boosted by a -2.3% decline for the Yen.
Meanwhile bond markets steadily sold-off during the month. Treasuries and Bunds finished -1.0% and -0.9% respectively while Gilts ended -1.6%. EM bonds actually returned +1.5% but still remain well down on the year. Speaking of which, EM currencies bookended the leaderboard in September. The Turkish Lira recouped +8.2% of its August decline however the Argentine Peso shed -10.7% as an extended IMF bailout plan highlighted the extent of the issues facing the country. The broader EM FX index did however return +1.6%.
Elsewhere credit markets ended the month broadly flat. European indices ended -0.4% to +0.2% with HY outperforming, with the story much the same in the US (-0.3% to +0.5%). Finally commodities were mostly stronger in September. Oil rallied with Brent and WTI returning +6.9% and +4.9% respectively with more and more talk of $100 Oil prices in the medium term, while Copper and Silver were +5.9% and +1.1% respectively. Gold did however fall -0.7%.
As for Q3, well it was a difficult quarter for Deutsche Bank's sample of assets with only 15 of the 38 ending with a positive total return in local currency terms and 13 in USD terms. Excluding the obvious heavy falls for EM currencies like the Argentine Peso (-30.1%) and Turkish Lira (-24.2%), the biggest declines were reserved for commodities including Silver (-8.8%), Copper (-4.9%) and Gold (-4.8%). Equities were more mixed with returns ranging from -8.6% (Greek Athex) to +9.0% (Bovespa). The S&P 500 returned +7.7% and outperformed the STOXX 600 (+1.3%). Bond markets were slightly down in total return terms (Bunds -0.8% and Treasuries -0.7%) however credit had a reasonably solid quarter, with EU HY and US HY in particular returning +1.7% and +2.5% respectively.
In terms of where that leaves us YTD, 14 of the 38 assets have a positive total return in local currency terms but just 8 have in USD terms reflecting broad dollar strength this year. Oil leads the way (Brent +30.0% and WTI +21.2%) followed then by US equities (NASDAQ +17.5% and S&P 500 +10.6%). European Banks (-11.8%), Greek Athex (-12.5%) and Shanghai Comp (-12.6%) continue to languish near the bottom while Bunds (+0.8%) have outperformed Gilts (-1.4%) and Treasuries (-1.8%). With the exception of US HY (+2.8%), all credit indices have seen a negative total return this year ranging from -0.1% to -3.1%.
Source: Deutsche Bank